Why Crony Capitalism Hurts Us All

In his blog post on the subject, Musk notes that “the rationale given for the regulation change that requires auto companies to sell through dealers is that it ensures ‘consumer protection.’ If you believe this, Governor Christie has a bridge closure he wants to sell you! Unless they are referring to the mafia version of ‘protection,’ this is obviously untrue. As anyone who has been through the conventional auto dealer purchase process knows, consumer protection is pretty much the furthest thing from the typical car dealer’s mind.”

Too Big to Fix?
Part of what perpetuates the problem is that those companies that have achieved enough size and influence to upend the system aren’t really motivated to do so because they benefit from that very system. Those business leaders wind up saying one thing but doing another. Consider CEO Charles Koch’s 2011 op-ed in The Wall Street Journal decrying cronyism and corporate lobbying for special favors. Yet Koch Industries spent more than $10 million lobbying in 2013 alone on more than 60 energy-related bills, according to government watchdog OpenSecrets.org.

“You have this strata of businesses at the very top of the economy who form a kind of crust, and the dynamism of the economy, the thing that keeps it going—competition, entrepreneurialism—begins to die off.”

And they’re not alone. “Everybody points to the Koch brothers and tries to make them look like super, super bad guys,” says Macey. “The fact is that you’ve got massive amounts of political activity going on by all sorts of special interest groups. We would have to stop all this stuff by everybody.”

In other words, companies of all sizes, even those who seem to benefit from the kindness of congressmen, would have to recognize that if cronyism is bad for some, it’s bad for all. “The problem we’ve had is that you have this strata of businesses at the very top of the economy who form a kind of crust, and the dynamism of the economy, the thing that keeps it going—competition, entrepreneurialism—begins to die off,” says Sorrentino. “It’s like an algae bloom on top of the economy. There’s no oxygen reaching down into the economic lake. It works for Boeing and GE, but that’s just short-term thinking. Eventually it will kill them, too.”

This is why Sorrentino and others believe the only way to fix the system is to dismantle it—because if there is no system, there is no way to game it. “Get rid of the regulations, get rid of government programs, get rid of the tax loopholes,” says Randall G. Halcombe, DeVoe Moore professor of economics at Florida State University and author of Producing Prosperity. “The smaller government is, the fewer favors it can bestow.”